Regulation

Comments on NASD Notice to Members 05-27

Thank you for allowing me to comment on the proposed changes to correspondence, in that a Principal would have to pre-approve any correspondence sent to 25 or more persons, whether clients, prospects or a combination of the two.

The modernization of Rule 2211 came with a great sigh of relief. To require pre-approval of correspondence to existing clients would take us right back into the prehistoric age. With the common use and unprecedented amount of e-mail communication, it would seem doubtful that most firms would have the capability to prevent an e-mail to 25 or more people prior to sending - unless the end users were disabled from e-mail communication. It is my understanding that most firms utilize a "spot check" procedure for these electronic communications, and it would seem to be a significant hinderance if I am now to require my reps. to remit any type of client/prospect communication - if it exceeds 25 in number - prior to their being able to send the information to their clients.

In our firm, frankly, we are small and therefore, I already pre-review and pre-approve anything that goes out to more than 10 people (existing clients or prospects). However, many firms with larger numbers and significantly higher traffic will no doubt find this proposal unworkable from an implementation standpoint.

The main problem I have, beyond the above stated logistics and what appears to be a backward movement in time, is frankly the limitation that is being placed on the representatives ability to communicate with their own clients. Already the rep. has to be cautious of the content of any "correspondence" that exceeds 14 in number - as any content that a person "may reasonably use to make a purchase or sell decision" now requires the rep. to be a research analyst and acquire the Series 86/87. Now they couldn't even send a thank you letter to attendees at a seminar, if the number exceeds 25. I fear that the constriction of information flow will no doubt result in less letter writing/e-communication (more use of the phone where the firm has NO record of what is said) - or failure of the representative to abide by the guidelines and finding a way to send simple messages without notifying the firm.

It seems that if a new rule is necessary, the rule for research analyst and this rule should have similar limits. It would be appreciated if there would be some coordination in at least the number of letters being sent (i.e. maybe the research analyst rule could be increased to no more than 25 persons to coincide with this rule). With all the new regulation and processes that have been placed on the industry over the past 24 months, it is difficult for the firms to keep the representatives informed as to the most recent rule requirements. It would be helpful in our efforts to communicate new rules and requirements if at least the variety of rules were somewhat uniform in terms of "how many" items could be sent with or without prereview. I'm not sure that a rule is actually necessary in this case, as correspondence as it is currently defined is reviewed by NASD examiners during routine audits. If violations are found in the content of these letters - where a principal has no doubt reviewed the piece, even if after mailing, then a Letter of Caution, sanctions or disciplinary actions should be the course of action. Possibly even letters of recission could be required where product is being promoted inappropriately.

I don't believe it is fair to continuously restrict the free flow of information and communication between reps. and their clients by implementing an industrywide rule, when in fact, there are already rules to prevent and discipline those that exceed the guidelines of what is acceptable written content.